Securities Exclusion Bars Coverage Challenge Related to Sale of Equity Interests
At issue in this case was a D&O policy exclusion for “any Claim made against any Insured…. based upon, arising out of or in any way involving … the actual, alleged, or attempted purchase or sale, or offer or solicitation of an offer to purchase or sell, any debt or equity securities.” The owners of an insured ice cream company sold their equity interests to a holding company that later sued them for misrepresenting the ice cream company’s financial condition and other alleged misconduct. After being denied coverage under the above exclusion, the owners sued the insurer for allegedly breaching its duties to defend and indemnify. Applying Texas law, the Fifth Circuit held that a D&O policy’s securities exclusion barred coverage for the suit and the Securities exemption to the exclusion did not apply.